In push for settlement, judge tells Oracle, Google to get real

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When Oracle and the European software developer SAP went to trial last winter to figure out what SAP owed Oracle for infringing software copyrights, Oracle asked for the moon. SAP argued that Oracle lost only about $40 million in actual profits as a result of its infringement. Oracle’s lawyers at Bingham McCutchen and Boies, Schiller & Flexner, however, told jurors to ignore lost profits and focus on what SAP should have paid Oracle in licensing fees. They ultimately persuaded jurors that Oracle could have received $1.3 billion in hypothetical licensing negotiations for the intellectual property SAP misappropriated. The jury verdict left SAP sputtering with astonishment; in attempts to set aside the award, SAP’s lawyers at Jones Day and Durie Tangri have called Oracle’s calculations of what it might have received in licensing talks “sheer speculation.”

That’s just what San Francisco federal district court judge William Alsup seems determined to avoid in Oracle’s do-or-die patent and copyright showdown with Google, which has allegedly incorporated parts of Sun’s Java code into its Android operating system. As Dan Levine has reported for Reuters, Judge Alsup held a contentious two-hour hearing last week on a report by Oracle’s damages expert, who asserted Google should pay Oracle between $1.4 and $6.1 billion. The next day, the remarkably efficient judge issued a 16-page order that called on Oracle to come up with a new damages estimate that’s better rooted in reality. The judge instructed Oracle to start with an actual number Sun proposed to Google in 2006 licensing talks–$100 million-and adjust that number up and down based on six factors he enumerates.

The judge seems pretty clear about dashing Oracle’s multibillion dollar dreams for the Google case. Oracle “simply served a [damages] report that overreached in multiple ways-each and every overreach compounding damages ever higher into the billions-evidently with the goal of seeing how much it could get away with, a ‘free bite’ as it were,” Alsup wrote. “Please be forewarned: The next bite will be for keeps.”

To be sure, the ruling has plenty of good news for Oracle as well. Judge Alsup isn’t giving up on the the prospect of Google’s liability for willful infringement, based on its decision to walk away from Java licensing talks with Sun in 2006 yet still incorporate Java IP in the Android operating system. (The notorious 2010 e-mail from a Google developer noted that the alternatives to Java “all suck” and concluded, “We need to negotiate a license for Java under the terms that we need.”) The judge also instructed Oracle to envision a damages scenario that included the possibility that Oracle could obtain a injunction against Google because of its infringement — a prospect that would certainly drive up the damages Oracle could claim. Finally, Judge Alsup said that Oracle’s damages estimate should be based on the advertising revenue Google derives as a result of cellphones that use the Android system.

But Judge Alsup orders Oracle to envision what real-world good-faith negotiations between Sun and Google might have looked like at the time Google was developing the Android system. Oracle can only claim damages based on that part of the Android system that actually depends on the Java patents, not an overarching theory that the entire system relies on the seven patents Oracle has asserted. On the other hand, Alsup said Oracle’s estimation may assume that its patents are valid and infringed. Oracle has until 35 days before the case’s scheduled October trial date to submit a revised damages report.

By my reading, though, the judge would vastly prefer that this case settle — and that seems to be the definitive subtext of his damages ruling. Judge Alsup has made it clear in previous rulings attempting to limit the case each side will be able to present to a jury that he thinks this case is a business dispute that should be resolved outside of the courts. Friday’s order is designed to pushing Google and Oracle to begin settlement talks that play around with the $100 million starting point Judge Alsup posits, but don’t stray far from it. If the two sides can’t work out a deal, Judge Alsup warns, both Google and Oracle are going to have to give up a lot of leverage as they head for that October trial date he’s sticking with.

As usual, spokespeople for Google and Oracle declined requests to comment.

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Alison Frankel updates On the Case multiple times throughout the day on WestlawNext Practitioner Insights. A founding editor of the Litigation Daily, she has covered big-ticket litigation for more than 20 years. Frankel’s work has appeared in The New York Times, Newsday, The American Lawyer and several other national publications. She is also the author of Double Eagle: The Epic Story of the World’s Most Valuable Coin.